After experiencing client withdrawals of nearly $8 billion in assets during the second quarter, Morgan Stanley's U.S.-based advisors produced net inflows of $2.4 billion in the third quarter, the company said Wednesday.
When non-U.S. advisors are included, the combined FA force had net inflows of $5 billion vs. outflows of $5.5 billion in the previous quarter and outflows of $11.9 billion in the third quarter of 2009.
"Morgan Stanley advisors' results are impressive," explained Mark Elzweig, an executive search consultant in New York, in a phone interview. "Keep in mind that the firm still has two parallel platforms [associated with its '09 acquisition of Smith Barney], which have yet to be merged."
The full brokerage firm and investment bank, however, said it had a net loss of $91 million, or $0.07 per diluted share, in Q3 vs. third-quarter 2009's profits of $0.38 per share. The loss reflected trading losses as well as a $229 million write-down due to the bank's decision to dump its investment in casino company Revel Entertainment Group.
In addition to the special charges for Revel, Morgan Stanley in its Q3 2010 release also saw a drop-off in trading profits, similar to the poor market conditions that other banks have reported this week as the third-quarter earnings season kicks off. Analysts' expectations had called for earnings of $0.19 per share.
Retail Results
Morgan Stanley financial advisors grew total client assets by 7% over last quarter and 5% over year-ago results to $1.6 trillion. Thus, the firm's 18,100 FAs manage $88 million in assets on average. Combined client assets at Morgan Stanley now top Merrill Lynch's $1.5 trillion; however they fall short of Bank of America's total retail-advisor assets of $2.2 trillion (when U.S. Trust results are included). In addition, Merrill advisors manage $99 million in assets on average.
"Morgan Stanley has a lot of high-quality advisors, and they control significant pools of assets," explained Elzweig.
As for production, or fees and commissions per rep, Morgan Stanley FAs produced $686,000 in average annualized sales in the third quarter up from $679,000 in the second quarter and $662,000 last year.
While improving, this still puts Morgan Stanley Smith Barney advisors behind those at Merrill, who averaged $851,000 in annual fees and commissions in the third quarter.
In terms of headcount, Morgan Stanley lost 22 advisors and ended the quarter at 18,119. It is down 41 FAs from last year.
However, it is still ahead of Merrill's 15,340 and Bank of America's total advisor force of 16,790 financial advisors.
Morgan Stanley's third-quarter results, which were reported one day after BofA-Merrill's, "are another example of the retail side of a major firm holding its own – doing a good job despite volatile markets and the challenge of integration after a merger," says Elzweig.
The two firms have gone through ongoing home-office turf battles and plenty of layoffs, he adds, and this has reduced the access advisors have to product specialists, especially at Morgan Stanley.
